Investor interest in income funds tapping into long-term government-backed revenues remains intense after Civitas Social Housing (CSH) raised £302 million in a share issue.
Although the real estate investment trust fell short of its £350 million target – a sum that would have doubled its assets and equalled the amount raised at its flotation a year ago – it is still a substantial achievement, making it the fifth biggest capital raising by an investment company in 2017.
Civitas, which provides sheltered accommodation to vulnerable people living in housing association or council-owned property, said the issue had broadened its shareholder base from the institutional investors and wealth managers who backed its over-subscribed IPO (initial public offer) in November 2016.
Private investors, pension schemes, ethical and property funds had all ploughed money in to the open offer and share placing, said chairman Michael Wrobel.
Among them, Clearance Capital, a specialist real estate investment management firm, served as the ‘cornerstone investor’, committing around £20 million, according to the company’s prospectus.
As a result Civitas has issued 302 million non-voting ‘C’ – or conversion – shares at 100p with an initial net asset value of 98p after launch costs. Trading started today.
New investors will receive a 3p dividend in the first year, rising to 5p in the second year with future pay-outs designed to grow in line with inflation. The C shares will convert into CSH’s existing ordinary shares within 12 months or when most of the money has been invested.
The raising leaves Civitas with a war chest of over £400 million to spend on new properties, once a £90 million debt facility has been finalised. It has identified £100 million of investments it could make soon with a further pipeline of £400 million over 12 months.
Although all of Civitas's revenues ultimately derive from housing benefit - an area of social spending that has been subject to government cuts - Andrew Dawber, director of Civitas Housing Advisors, the fund's manager, said payments had not been cut in its target market.
Tenants in its homes were typically unable to work, possibly suffering chronic addiction constant care, Dawber (pictured) said.
'Our tenants are actually means tested but they have very few means. Under the Care Act local authorities are obliged to care for them,' he said.
Dawber, a former corporate stock broker who launched the first listed infrastructure fund in 2004, PFI Infrastructure Company, said there was cross-party agreement to fund sheltered housing. 'Society has decided it is a good thing to look after vulnerable people,' he added.
Political risk in the public-private arena has heightened since Labour expressed a desire to scrap unfair private finance inititative (PFI) contracts at the party's annual conference last month, knocking shares in social infrastructure investment companies.
Paul Bridge, chief executive of Civitas Housing Advisors, said the team was not complacent about the risk of government intervention if Labour won the next election. However, he added: 'The reality is the majority of councils we deal with are Labour. What they want is homes, this is not a political debate for them.'
Bridge, a former chief executive of Homes for Haringey in north London (pictured), said Civitas had housed 1,900 people since its IPO. He said it aimed to provide good value, small properties to housing associations whose government grants have been cut, incentivising them to sell and lease back properties to companies like Civitas in order to free up capital with which to develop new homes.
Bridge said the provision of smaller, sheltered housing (main picture) was more humane and successful than the traditional image of large blocks of council flats. 'Putting people in very large system-built buildings in the 1960s has not been successful from a community perspective,' he explained.
The net asset value of Civitas Social Housing's ordinary shares rose 12% to 109.8p in the ten months to the end of September, reflecting the fund's investment activity (with 84% of its flotation proceeds inveted) but also a valuation approach that differs from conventional real estate investment trusts.
Unlike these, Civitas Social Housing applies a portfolio premium to its valuation. It argues that institutional investors would never buy a single property but would seek to buy a basket of assets, like its own, to gain exposure to the sector.
The Civitas share issue demonstrates the trend for investors to buy income from 'alternative' sources. The four biggest investment company fund raises this year have all been in this category, with BioPharma Credit raising £611 million, TriTax Big Box Reit (BBOX)£350 million, Greencoat UK Wind (UKW) £340 million and International Public Partnerships (INPP) £330 million.